Charging the correct amount of sales tax for economic nexus (Wayfair)

[Peter_Mendola]

So, we realize this functionality is most likely on Shopify's radar, but I just need to stress the importance of tax setups for the non-Plus users and new upcoming economic nexus/wayfair case tax laws.

As it stands right now, the shopify economic nexus tax feature is just a hack/workaround of the physical nexus feature, where you just add any old zip code and shopify will calculate taxes. The problem is, this does NOT work in a state like CA since local/district taxes need to be charged everywhere based on economic nexus, not just inside the district of the physical nexus *which doesnt exist* with an economic nexus!

CA law doesn't go into effect until April 1 but ourselves as well as many other businesses have already received letters from the state asking us to collect and remit immediately. And of course this feature needs to be ready prior to 4/1 and not a day after. 

Chat support offered a workaround of adding every zip code to shopify as a physical nexus (lol) which in theory is not the worst idea but there's no way....

can an override maybe be created to charge these all local taxes? Is there something I'm missing here? I'm sure tons of sellers are running into this same issue.

[Ana7]

Hi Peter_Mendola, 

I feel you. Have you consider to use a compatible software solution to automate the sales tax mess? Besides issuing invoices with sales tax included and creating tax reports so you can easily fill your tax return, some of them can notify you when you have surpass the threshold of an economic nexus. 

Take a look at Quaderno, for instance. 

Hope that helps! 

[Nick]

Hi @Peter_Mendola,

Nick here from Shopify. 

Thanks for messaging and giving your feedback on this. I completely understand how this is annoying and can impact your business. I spoke to our team directly who works within taxes and the best way for this is what the support team mentioned regarding the ZIP codes. Shopify's information document mentions it here with the part most relevant to you screenshot below: 

If you would like to elaborate on this further and how it might impact your business, please let me know and I can reach out to you directly via email or if you email us at support@shopify.com and reply with your ticket number in this thread, I can make sure the right team sees it for you. 

Looking forward to hearing from you. 

All the best, Nick

[spiffystack]

"If the state is a destination state, then add a physical presence that uses any zip code for the state, but you don't need to add an override. The taxes are calculated based on where the buyer is."

How do I add a physical presence that uses any zip code for the state?  When I go to shipping zones to change the ship from address, it requires the address, city, state, country, and zip code fields to be filled.  That doesn't facilitate a state-by-state with automatic zip code lookup upon checkout action.

[Nick]

"If the state is a destination state, then add a physical presence that uses any zip code for the state, but you don't need to add an override. The taxes are calculated based on where the buyer is."

How do I add a physical presence that uses any zip code for the state?  When I go to shipping zones to change the ship from address, it requires the address, city, state, country, and zip code fields to be filled.  That doesn't facilitate a state-by-state with automatic zip code lookup upon checkout action.

---

Hi @spiffystack,

Would you be able to elaborate a little more on what you mean, please? A destination state is when an order is being charged based on where the customer buying is based, not the seller which would be you in this case. The shipping origin address would only be your address or an address you would ship from. Would you be able to explain what you mean by "That doesn't facilitate a state-by-state with automatic zip code lookup upon checkout action."  in more detail for me? I think this is what I am not understanding 100%. 

In the meantime, Shopify has a helpful guide on the set up for Shipping Origins also which you might find useful.

Looking forward to hearing from you, Nick

[spiffystack]

What I meant is, if I'm shipping to a buyer (not me, the buyer of the product from my web store), their location is the destination state (US only).  Since there are varying sales tax cost percentages (e.g., 6% flat in Michigan, whereas California has multiple sales tax costs), how do I add a destination so at checkout the taxes are accurately calculated and displayed to the buyer in the final purchase price?

[Mike_M1]

Here it is, the CA cutoff date for the new law and this thread has no answers for 3 months.

Shopify, you need to give us a guide on how to properly set up CA sales tax for those of us that now have economic nexus.

This whole sales tax thing is the biggest cluster.  The feds need to take over and unify the collection and submission of tax.  This is a ridiculous burden on small businesses.

[wendyweeber]

Thank you for this thread Peter, I am having trouble with this, too.

This is especially  frustrating because I can see ALL the California county/municipal rates in Shopify under tax rates for each zip code -- Shopify KNOWS what they are. So why can’t it apply them correctly to an order that contains that same zip? If the list of taxes in Shopify includes every zip code in CA, when an order comes in, why doesn’t Shopify say, “IF I get an order from 90210 AND it's a modified-origin state, THEN apply state rate+county rate+city rate = 9.5%". Maybe I am just ignorant about the programming, but it seems like if Shopify has all the state tax rates already plugged in so, Why can’t it attach those rates correctly to an order when it encounters the same zip code in an order?  And why doesn't anyone at Shopify understand that it is NOT applying tax rates correctly in California, no matter how many times they tell me it works fine?

Pour yourselves a stiff drink, folks because -- guess what? Shopify's tax collection feature does not work for California without a LOT of massaging as described by Peter. California alone (mind you, California is a BIG state, and would be considered the world's 5th largest economy were it a country, so if you're making sales, you will probably have to deal with California), you will need to enter a representative zip code for each county in California. Here is the PITA hack/workaround for force Shopify to apply the correct rates: https://www.abigailgorton.com/2017/12/06/workaround-shopify-california-tax-rate/. Also, if there are municipal variations within the county, you'll need to add those, too. Sounds fun, doesn't it? It's a pain, but you can do it.

Even better? Shopify support keeps telling me that their tax collection works in California. It does not. See Nick's reply above and you will see the kind of very nice, very empathetic, very sweet but also very mindless cut-and-paste customer service we "regular" Shopify folk have to look forward to as Shopify focuses resources on its million-dollar-salesmen ShopifyPlus customers.

I do not mean to be ungrateful. Shopify does so many, many many things for me and my business every day. Without Shopify, I would not be in business — I appreciate every feature and every amazing thing Shopify does on the daily.

But I wish Shopify could understand that this particular feature does not work for California and it means I am overcollecting or undercollecting taxes in that state, which is sloppy.

I know this is all very complicated, and a variety of apps will file your taxes (Quaderno, Taxjar, Avalara) for you, but none actually generate the rates (unless you upgrade to Shopify Plus and get Avalara, but that’s if you’re doing $1 million in sales, which is not me) I am still stuck here with the Shopify-generated rates that exist — but do not correctly attach to an order for every state.

[wendyweeber]

An update from Shopify support, they are working on it:

"My name is Drake from Shopify Technical Support, it’s very nice to meet you. Alison has brought me up to speed on what you have been experiencing with Economic nexus changes causing labour intensive physical presence issues as well as some Zips not charging tax as expected. I have had a look at whats going on, and spoken with our Devs and this is the result of my investigation:

Economic Nexus changes:

- Our tax system was never built to accommodate automatic changes to physical locations in this way, and while we knew the change was coming, it was not announced with enough time for us to develop a way to accommodate this change reliably. for now, the way you are adding physical locations for areas that qualify is the best action to take; but our Devs are aware of the problem and are already working on a whole new tax system, which will also address the second issue we have here.

Some ZIPs not charging taxes as expected:

- This is a limitation of the current tax system as well. Taxes are charges on a By-ZIP basis, but tax jurisdictions (which denote what taxes are charged to what area) are not limited by ZIP. This means that a single ZIP code are can have many different tax jurisdictions and each one could be a different tax rate. As a general rule of thumb currently we take the highest rate from the tax jurisdiction in any particular ZIP code are and use that as the default rate. In all cases but one so far I have checked the ZIP code examples that you provided and these are all expected to be the rates that is currently being charged. the ZIP code 95903 does not conform to what I expected to find however, and I have asked our devs to confirm what the rate should be for that, and correct it if needed.

So in conclusion, most of what you are experiencing is expected at this time. Our devs are working on a completely rebuilt tax system that will address all of these issues, but I don't have a timeline when that will be complete yet. For now, adding physical locations as you have been is the best way to adhere to the new economic nexus changes.

Please let me know if you have any questions or concerns."

[tax_pro]

Hi wendyweeber,

There are two situations in which California sales tax collection requirements could be simplified... 

1. IF you're a "remote seller" to California, meaning you do not have physical presence in the state, and you're total sales have not exceeded $500,000 in either the previous calendar year or the current calendar year THEN you are not required to collect and remit California sales tax. 

2. IF your business does have physical presence in the state (at one or more locations) and IS NOT engaged in business in any other district tax jurisdictions and you're total sales have not exceeded $500,000 in either the previous calendar year or the current calendar year THEN you are required to collect and remit California sales tax basic rate of 7.25, plus district tax of any sales shipped to a destination within the same district as your primary business location but NOT required to collect district tax of any sales shipped to a different district. 

In situation 2 there would be two options for setting up the tax rate... 1) Use the zip of your business location or 2) setup a tax override of 7.25 for the entire state.

The disadvantage of option 1 is if your location is in a district tax jurisdiction then the additional tax rate would be applied on all sales across the state resulting in excess tax which, while it can be reported to the state,  the state frowns upon when it is done on a continual basis.

The disadvantage of option 2 is if your location is in a district tax jurisdiction then the tax would be under collected on sales shipped to a destination within that district and your business would pay more sales tax to the state than it collected.  However perhaps that difference is well worth the trade off in the time saved on tax rate setup?  The other disadvantage with a rate override is having to manually change it when the base rate in the state changes but fortunately those do not happen often (typically years) in comparison to local jurisdictions.

Hope you found this explanation helpful.

If you'd like to discuss you're situation in more detail to determine how to simplify you're business' sales tax reporting obligations please email jerry.shopify@tsttllc.com. 

[Sadiephillips]

Did you find a solution? I am running into this same issue and Shopify told me to add all the zip codes for physical locations!

[abensaid]

I have been going back and forth with Shopify support on the CA sales tax issue for non-plus users who have reached the $500K threshold, and there is absolutely zero movement.  They have been quoting outdated guidance and I am at a complete loss.  Has anyone received a more realistic or optimistic response?  

[wendyweeber]

I did finally get through to someone after weeks of hounding and they said they are working on a solution.

[abensaid]

Thanks so much for the update - I assume there is no timeline, but happy to hear they are at least working on a solution.

[wendyweeber]

Fingers crossed! Seems ShopifyPlus is somehow able to handle the CA sales taxes correctly, but I’m not making enough dough to make it cost effective. But it gives me hope that if ShopifyPlus can do it, so can Shopify. Keep in mind these state sales tax laws are probably still in flux (for example California changed the threshold to $500,000). Shopify might need to wait to see how other states adjust/respond.

[tax_pro]

Forty three of the 46 states that have a sales tax have already implemented a economic nexus law. Actually Arizona's is scheduled to go in this coming October.  Subsequently the percentages of remote sellers required to file in those states is continuing to grow and there sourcing rules for determining which tax rate to charge will be destination based even in most of the 11 states that Shopify has identified as origin based sourcing (meaning the sellers location within that state). In the case of Illinois the remote seller is only required to collect the state rate of 6.25.  

Therefore it would appear to me that the simplest and quickest solution is to change the logic of those origin based states to use the same logic as the destination based states.  Unfortunately this would adversely impact those sellers physically located within any of the 11 origin based states in that they would need to enable a tax override for their state to match the tax rate of their physical location.  However their solution / workaround is much less labor intensive compared to what is currently required of a remote seller trying to collect the correct tax in those states.

But then I also recognize maybe it is more complicated than this.  So hopefully Shopify will resolve soon. 

[wendyweeber]

My solution for California was to enter all zip codes. It's a huge pain in the booty. If you are not located in California, or you make under $500,000 in sales in California, then you do not have to file Ca sales tax. Read above thread. Nothing has yet changed on Shopify's end, but they say they are working on it.

[Mkco13907]

Shopify needs to get to the bottom of this. This Wayfair ruling is creating so much headache for small businesses like us who are the majority of Shopify's users.

Some of the states are planning to implement streamlined sales tax rates to make things easier for remote seller in the near future. Shopify needs to be ready to update the way they calculate sales taxes when that happens.

Another suggestion is to work with sales tax app developers such as Taxjar or Avalara. I heard that Taxjar cannot fully override Shopify sales tax calculation, so sometimes the sales tax $$$ recorded on Taxjar don't match sales tax $$$ collected by Shopify. This is very true to orders made in California.

Taxjar and Avalara are more up-to-date with tax regulations and rates. Shopify needs to let their apps fully integrate (and sometimes override) Shopify's default tax calculation method.

[JoshDinh]

how did you add all CA's zip codes and tax rates i do not see a setting for this